--%>

Explain Cost of capital aspect

Cost of capital aspect: Estimation of WCR is beneficial from the point of view of cost of capital too. A sound working capital position is beneficial from the point of view of both owners and lenders of the company. A sufficiently positive position means that the firm is able to meet all its short term needs even if they arise quickly. Therefore, the lenders will be secure in this scenario. For the owners, this situation means that the secure short-term lenders will extend them easy credit facilities and higher payment schedules. Thus, the impact on the overall situation will further get negated. The firm will be able to perform with lower cost of capital. Another aspect of large positive working capital is that it will mean lower level of long-term funds involvement thus, reducing the overall cost of capital for the firm. On the other side, if the WCR estimation turns out to be negative the firm will be able to identify the probable threats to its operations from existence of such situation and take corrective actions. This will help to bring down the possibility of any such occurrence and their impact period is minimized to a minimum. Some of the steps could be more lenient. Sales policy which would result in more sales in the market, paying off of unnecessary payables which only result in raising amount of current liabilities a without any productive use.

   Related Questions in Corporate Finance

  • Q : Is it correct to use valuation of

    Is this correct to use in the valuation of the shares of a certain company the “the real net assets value” which, as per to the Institute of Accounting and Auditing (ICAC), shows the “book value of shareholder’s equity, corrected through increa

  • Q : Which frame work does not give very

    Which model of frame work does not provide the very good prices for bonds?

  • Q : Understand and interpret financial

    Our purpose this week: learning how to understand and interpret financial statements. Assignment: The class should discuss all of the questions listed below as they rel

  • Q : Is it possible to use a constant WACC

    Is this possible to use a constant WACC in the valuation of a company along with a changing debt?

  • Q : Bond Price Information What is Bond

    What is Bond Price Information: Answer: Corporate bond market is not considered to be much transparent as it trades predominantly over the counter and investors do n

  • Q : Working Capital - Current Assets and

    I do not know the meaning of Working Capital Requirements. I think this should be same to Working Capital (Current Assets – Current Liabilities). There am I right?

  • Q : Shall we use the arithmetic mean or the

    The market risk premium is the difference between the historical return on the stock market and the return on bonds. But how many years does “historical” imply? Shall we use the arithmetic mean or the geometric one?

  • Q : All rates are stated annually with

    1 Assume the following (all rates are stated annually with semiannual compounding) a. Six Month Spot Rate is 2% b. Six Month Forward rate starting at month six is 2.2% c. Six Month Forward rate starting at month 12 is 2.4% d. Six Month Forward rate starting at mont

  • Q : Problem on maintaining dividend Jackson

    Jackson Company has 6 million shares of common stock selling at $55 each. It also has $120 million in long-term bonds with coupon 7%, selling at 90. The tax rate of Jackson is 33%. Next year its EBIT is expected to be $25 million with a standard deviation of $7 millio

  • Q : NPV and Other Investment Criteria The

    The XYZ Manufacturing Company is considering the below investment proposal. The initial investment is $100,000. It was an expected economic life of 10 years. The net cash flow in the initial year is expected to be $25,000 and annual net cash flow is expected to develo